SMITH INTERNATIONAL, INC. PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

EXHIBIT 10.5

SMITH INTERNATIONAL, INC.
PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

      THIS PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT (this “Agreement” ) is made and entered into by and between Smith International, Inc., a Delaware corporation (the “Company” ) and «Full_Legal_Name» , an individual and employee of the Company ( “Grantee” ), on the «Grant_Date» day of «Grant_Date», «Grant_Date» , (the “Grant Date” ), subject to the terms and provisions of the Smith International, Inc., 1989 Long-Term Incentive Compensation Plan, as amended and restated effective January 1, 2005 (the “Plan” ). The Plan is hereby incorporated herein in its entirety by this reference. Capitalized terms not otherwise defined in this Agreement shall have the meaning given to such terms in the Plan.

      WHEREAS , Grantee is an employee of the Company, and in connection therewith, the Company desires to grant to Grantee performance-based restricted stock units, subject to the terms and conditions of this Agreement and the Plan, with a view to increasing Grantee’s interest in the Company’s success and growth; and

      WHEREAS , Grantee desires to be the holder of such units subject to the terms and conditions of this Agreement;

      NOW, THEREFORE , in consideration of the premises, mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

      1. Grant of Target Units. Subject to the terms and conditions of this Agreement and the Plan, the Company hereby grants to Grantee «Shares_Granted» ( «Shares_Granted» ) Target Units (“ Target Units ”). Subject to Section 3 hereof, each Target Unit shall initially represent one share of the Company’s Common Stock (“ Share ”), $1.00 par value. Each Target Unit represents an unsecured promise of the Company to deliver Shares to the Grantee pursuant to the terms and conditions of the Plan and this Agreement. As a holder of Target Units, the Grantee has only the rights of a general unsecured creditor of the Company.

      2. Transfer Restrictions . Grantee shall not sell, assign, transfer, exchange, pledge, encumber, gift, devise, hypothecate or otherwise dispose of (collectively, “Transfer” ) any Target Units granted hereunder. Any purported Transfer of Target Units in breach of this Agreement shall be void and ineffective, and shall not operate to Transfer any interest or title in the purported transferee.

      3. Performance Criteria and Stock Awards . Upon satisfaction of the Performance Criteria as established by the Compensation and Benefits Committee of the Company’s Board of Directors (the “ Committee ”), the Company shall determine the number of Shares payable to Grantee as provided under this Agreement, subject to certification by the Committee that the specified Performance Criteria have been satisfied. The maximum number of Shares of the Company’s Common Stock that will be awarded under this Agreement is determined as a percentage of Grantee’s Target Units, such percentage based on the Company’s fiscal year «YEAR» return on equity, as calculated by reference to the Company’s audited financial statements, in such manner as established by the Committee.

      4. Vesting and Payment of Target Units .

          (a) Grantee’s interest in the Target Units granted hereunder shall vest in accordance with the following schedule, conditioned on Grantee’s continued employment with the Company as of each such vesting date (the “ Vesting Date ”), except as provided in Section 5 hereof.

          (b) Settlement of Target Units . Subject to Section 7 hereof, the Company shall grant to Grantee, within two and one-half (2 ¹ / 2 ) months after the end of the calendar year in which Target Units become vested pursuant to Section 4(a) above, a number of Shares equal to the number of such vested Target Units determined in accordance with

Sections 3 and 4 , (provided Grantee has not terminated employment prior to the applicable Vesting Date) unless otherwise provided under Section 5 hereof. Each vested Target Unit shall thus be exchanged by the Company for one Share, and such Target Unit shall be cancelled as of the effective time of such exchange as reflected on the Company’s stock records. All Shares delivered to or on behalf of Grantee in exchange for vested Target Units shall be subject to any further vesting, transfer or other restrictions as may be required by securities law or other applicable law as determined by the Company.

          (c) Dividends, Splits and Voting Rights . If the Company (i) declares a stock dividend or makes a distribution on Common Stock in Shares, (ii) subdivides or reclassifies outstanding Shares into a greater number of Shares, or (iii) combines or reclassifies outstanding Shares into a smaller number of Shares, then the number of Target Units granted under this Agreement shall be proportionately increased or reduced, as applicable, so as to prevent the enlargement or dilution of Grantee’s rights and duties hereunder. The determination of the Committee regarding such adjustments shall be binding. Until such time as Shares are actually delivered to Grantee in exchange for vested Target Units pursuant to Section 4(b) (above), Grantee shall have no voting, dividend or other ownership rights in such Shares.

      5. Forfeiture .

          (a) Termination Due to Death or Disability . If Grantee’s employment with the Company is terminated due to death or Disability